Apple falls 6% on valuation concerns

SAN FRANCISCO (MarketWatch) -- Apple Computer Inc. shares fell more than 6% Monday to two-month lows, wiping out their gains for the year, on concerns that the company's expected profit growth rate for 2006 is already priced into its stock.

Apple
AAPL, -0.45%
fell $4.55 to $67.30 on trading volume that was double the three-month daily average. The shares are now down 22% since reaching an all-time high of $86.40 on Jan. 12 and are at their lowest since Dec. 1.

Apple shares about doubled last year and surged to record highs in mid-January after Chief Executive Steve Jobs said at a conference that the company's revenue for the quarter ended in December was higher than Wall Street expected.

While analysts expect sales of Apple's iPod portable music players to drive profit and sales almost 50% higher for the fiscal year ending in September, some investors are starting to wonder whether that will be enough to support Apple's stock gains.

"All the good news is out. The easy money has been made," said Robert Bacarella, manager of the Monetta Select Technology Fund
MSCEX
which owns Apple shares.

Bacarella sold about two-thirds of his Apple stake in recent weeks because of concerns that the company's growth rate, while solid, is slowing.

Despite the huge success of the iPod, along with increased sales of Apple's flagship Macintosh computer line, Apple's year-over-year growth is expected to slow for the year ending in September.

For the full year, analysts expect profit and sales will rise about 48%. Last year, profit rose 384% to $1.35 billion while sales climbed 68%, to $13.93 billion.

Although Bacarella said there is little to suggest it is necessary to sell Apple shares, the stock needs to show some strength at the $67 price level to maintain broad confidence.

"My gut feeling is that people are taking some [profits] off the books," he continued. "They feel the stock looks tired and want to get some payoff from it." Apple shares make up about 0.5% of his $2 million fund, down from 1.5% before the recent sales, he said.

Apple sold more than 14 million iPods in the December quarter, which helped boost profit to $565 million on $5.75 billion in revenue.

Gene Munster, who covers Apple for Piper Jaffray, said much of the selloff appears based on speculation about market acceptance of the company's new computers that run on microprocessors from Intel Corp.
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In January, Apple unveiled its first Intel-based computers, the new iMac desktop PC, and the MacBook Pro notebook.

However, Munster says it's hard to justify at least some of those feelings about Apple's product launches.

"There is concern that the iMac isn't selling well because there is not much [third-party] software behind it, yet," Munster said. "But the MacBook Pro isn't even shipping, yet, and I don't know how anybody can claim to have a read on it if it isn't even out on the market."

For the quarter ending in March, analysts surveyed by Thomson First Call estimate Apple will earn 44 cents a share, up 29% from a year earlier, on $4.58 billion in revenue, up more than 41%.

The Mac and iPod maker executed a 2-for-1 stock split on Feb. 28, 2005 after its shares reached almost $90 -- and then saw the stock nearly reach that price again in January.

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